A closer look at the cost of building the Xbox One

If you bought an Xbox One for $500 in the US or £430 in the UK, rest assured that you got a good deal: It cost Microsoft $471 (£290) to make the Xbox One, new Kinect, and everything else in the box. After the retailers’ cut, Microsoft loses money on every Xbox One sold. At $471 (£290), the Xbox One costs about $90 (£55) more than the PlayStation 4 – a cost difference that is almost entirely down to the new Kinect, which costs around $75 (£46) to make.

This data comes from IHS iSuppli, which reported its bill-of-materials teardown analysis of the PS4 last week, and then the Xbox One yesterday. The cost of making an Xbox One mostly boils down to the APU ($110/£68 from AMD), 8GB of RAM ($60/£37 from SK Hynix), and the Kinect ($75/£46). The cost of the console itself comes to around $332 (£205), with the Kinect, power brick ($25/£15), gamepad ($15/£9), and headset making up the remainder.

For the PS4, iSuppli estimates that the APU was slightly cheaper ($100/£62), but the GDDR5 RAM cost a lot more ($88/£54). The hard drive ($37/£23), controller ($18/£11), and various other bits bring the total build cost of the PS4 to $381 (£235). The big cost difference between the Xbox One and PS4 boils down to the fact that the PS4 doesn’t have an external power supply, and of course there’s no Kinect-like peripheral in the box.

As you can see, though, neither console is being sold at a profit – the $28 (£17) margin on the Xbox One ($499 minus $471) and $18 (£11) margin on the PS4 ($399 minus $381) are almost certainly being eaten up by the retailers. The margins are certainly better than the previous generation of game consoles, though – at launch, the PS3, which sold for $600 (£370) in the US, cost around $805 (£495) to make.

One slightly odd discrepancy between the two consoles is the differing APU costs. With a significantly larger GPU, you would expect the PS4 APU to cost more – but in actual fact, the Xbox One’s APU costs $10 (£6) more. The cost difference is probably down to the Xbox One’s 32MB of ESRAM, but who knows – iSuppli almost certainly isn’t privy to the actual negotiations between AMD and Microsoft/Sony, and so its analysis is probably down to the different die sizes (the PS4 APU die clocks in at 348 square millimetres, while the Xbox One APU is 363 square millimetres).

What’s most interesting, though, is just how similar the build costs are if you remove Kinect from the equation. I strongly suspect that Microsoft toyed with the idea of launching at $400 (which would have translated to £350 in the UK, no doubt) without Kinect, and that Sony considered launching at $500 (£430 in the UK most likely) with the PlayStation Camera. Now that the Kinect is no longer mandatory (following the mother of all backlashes), it’s probably only a matter of months until Microsoft releases a standalone Xbox One for $400/£350. It’s also clear that both consoles have an easy path to profitability – by simply transitioning the APUs from 28nm to 20nm, which will probably occur in late 2014 or 2015, both consoles should make a decent (10 per cent) profit.